Analyst urges government action to prevent housing ‘free fall’

Property analyst Bob Dey says latest building figures confirm the housing industry is in “free fall” and the construction industry is now “out of control.”

The number of new housing units authorised in January fell 8.2%, seasonally adjusted, according to a new report from Statistics New Zealand.

Government statistician Geoff Bascand says including apartments, there were only 812 new housing units authorised for the month, which is the lowest total since the series began 34years ago.

The construction industry – one of New Zealand’s largest employment sectors – is now “out of control” says Mr Dey, and the government will need to take measures to ensure more buildings, up to 1500 a month, are authorised in order to keep house prices balanced and the building industry employed.

“The efforts of the government so far to fix that will not prove to be adequate,” he says.

The total number of new buildings for the year is down to just over 17,000 for the year, down from 25,000 last year – a 31% drop.

The drop off in construction of new housing will be insulating house prices from correcting faster and closer to historic norms by massively reducing supply.

The number of new housing units authorised has been falling rapidly since June 2007, and is now half the level it was then.

And for the first time since 1988, the value of consents issued for non-residential buildings ($362 million) exceeds the value of consents issued for residential buildings ($329 million).

Residential buildings made up 48% of the total value of all buildings for the month, with non-residential buildings contributing 52%. In the previous 12 months residential buildings averaged 58%.

Apartments made up 8% of new dwellings authorised for the month, compared with a monthly average of 11% for the previous 12 months.

The value of all consents issued for buildings was $692 million, a decrease of 19% compared with January 2008.

This slowdown will lead a lot of builders going to New South Wales and Queensland says Mr Dey, where housing is being encouraged, and significantly fewer apprentices being employed – so that when the industry does turn around in “say, three years or so,” there will be few skilled staff ––meaning a saga like the leaky buildings fiasco is significantly increased.

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14 Comments & Questions

We are now seeing the otherside of Labours idiotic idea to make a net migration gain of over 40,000 people in one year- things looked rosy for a while, but now we are getting the cold shivers. You can't have massive immigration swings without trouble.

Why do we always turn to government to help us out we the economic climate turns bad? Let the market sort it out. The slowdown in building will, over time, reduce supply. That will eventaually see property prices rise and a return to activity in the building sector. Builders should have looked beyond their nose and put some money away (or reduced debt) so they can weather the down-turns that are characteristic of their industry.

The housing market has been "out of control" for about 7 years. With any boom, comes a bust. The government did nothing to slow the boom down, so why should they do anything to slow the bust down? Mr Dey may be a housing market analyst, but that expertise appears to be as far as it goes. If his analysis business under some pressure, then he can be rest assured it will bounce back in “say, three years or so.” Let the government govern, let the babysitters babysit.

The Govt does have a role in sorting the property market out, and that is to rectify the favourable tax treatment that led to NZrs love of buying houses off each other in an endless property go-round.

Successive Governments over a period of 30 years have created one of the most unaffordable property markets in the world. The sooner they address the underlying reasons for this the sooner we can have a construction industry that builds house to meet real and sustainable demand.

The last 7 years of excess have to be rectified one way or the other. Cut supply, or Cut selling price, or some combination of the two.

Why should the Govt settle on 1500 houses per month? If Mr Day wants them to intervene, why not 2500, you know the addage "build them and they will come".

Virgil has a far better grasp of the situation than Mr Dey, the Government has to set policy. And based on the policy the market will decide what the correct number of houses is going to be. Our only hope though is that the policies of the past are changed, otherwise we will have a repeat boom-bust cycle and the next one will be a lot worse than this current one.

More uninformed comments from readers who probaly have little or no knowledge of what actually going on with housing (besdies I suspect envy of people who have profited from it). Mr Dey is right the govt should step in. There will be a major shortfall in hosuing in two years time (unless all our frinds and family leave NZ). That will be very hard to fix quickly . he govt needs to incease fund avaialbilty from lenders and stop council costs/ bottlenecks which is where the real problems lie.

Show me where the government has ever steped in successfully. If they did they will do one of 2 things, provide cheap debt so people can "afford" the houses. Or oversupply the market and drive the crash further than necessary.
Good call onthe councils though, their restrictions on subdivison, urban expansion, and endless use of Comittees to delay decisions has driven 60% of the boom at least.

You are right on the money DD the issue is how do you organise a fall in property values to an affordable level and fund the necessary level of stock to meet the demand that will occur - if I knew the answers I would keep it quiet for now whilst I positioned myself to take advantage of what may be the chance of a lifetime. But on the other side, this crisis has no parallel so predicting the course is anybody's guess.

Builders should have probably saved some money for the bad times rather than buying expensive brand new SUVs & other toys.I will not be happy to see taxpayers money being used for soothing the pain of their stupidity..

What do you base your prediction there will be a major shortfall in two years time?

Right now the demand for housing is being adjusted to a level set by those who need houses to live in, rather than those who want to buy investment properties and rent them to the massive influx of new migrants (not).

Those coming to NZ will find plenty of homes available and property to rent. Those leaving the country are either selling up, or if they don't like the price they are becoming unintentional landlords.

I think the property developers who made money should be applauded for doing what entrepreneurs do, that is they seek opportunity and produce wealth for their stakeholders and family.

What I believe the Government should do is look at the overall economy and decide what is best for all, affordable housing or boom bust cycles in Kiwis most valuable asset.

The taxation signals sent by Government, the use of the OCR to effect consumption control, and the rationing of land around population centres has contributed to every NZ'r paying more for the roof over their head than they should have in a more balanced economy. The end result of which is that rather than saving (ie spending less than we earn) we find the population is up to their eyeballs in debt with little room to move.

So, the developers should have been asking themselves, what happens when the wind fall earnings stop. At some stage economics 101 (supply / demand) will restore a balance and no Government is going to fill your pockets just because you are a little short right now. Do what the rest of us are doing, look for new opportunities, fix some of the leaky homes at a reasonable price and realise that for some time to come 2500 consents a month is but a fond memory of the good old days.

On a serious note, I do look forward to the day that 2500 consents are needed to meet the demand for new housing, based on the fact that NZ has become a vibrant economy with great growth in "productive output" that the rest of the world wants to buy.

With a chance of getting my classical history mixed up, the risk is that an investment property portfolio looks like becoming the Trojan Horse for Wealth. Some people cannot wait “say, three years or so” for things to come right. A lot of people will need to sell some of their property portfolio now, and in a distressed market with cash rich prowlers ready to pounce. I think the Odysseus of wealth is waiting just outside the gates and no one can do much about it. That is a problem of using one asset class as a road to riches.

So Mr. Dey, why on earth would the government want to start building more houses. The market will quickly correct if immigration fires up, there are lots of sections available. With a net inflow of only 4,000 (needs a about 1,200 units/year) and a trend to sharing to keep costs down where is the demand coming from? Even with this decline we are building way more than is justified by natural increase and immigration. A classic case of waste and misalocation of resources.
What are the current vacancy rates? There seems to be stacks of stock for sale and to rent. Leave the market alone you interfering busybody.
Cheers,
David.